Ratings take hit
Standard & Poor's slashed the corporate credit ratings of Sun Hung Kai Properties (SHKP) and Hysan Development yesterday, to reflect its downgrading of Hong Kong's sovereign credit rating.
SHKP's rating was cut to A from A plus while Hysan's was reduced to BBB plus from A minus.
The United States credit agency said the rating outlook for both companies were negative and they were removed from the CreditWatch list.
Analysts said the downgrades were not unexpected after the agency's concerns over the health of Hong Kong's sovereign credit.
They said the action would inevitably raise SHKP's and Hysan's cost of funding.
'The downgrade reflects increased risks in Hong Kong's property industry, from where SHKP's core earnings are derived,' Standard & Poor's said.
The agency said the dramatic property price slump and weak prospects for a quick recovery could have a serious impact on SHKP's profitability in coming years.
It forecast SHKP's historically strong financial profile would weaken over the course of the revised property cycle.
An SHKP spokesman said the downgrade would not have an impact on the company, which he said was in a better financial position than a year ago. He said the company generated property sales of $26 billion in the last financial year, of which $20 billion was received, and recurrent income would exceed $6 billion for this financial year.
SHKP said the company's matured credit facilities had been renewed since last October and it had established a significant number of new credit lines.
As of June, SHKP's net debt stood at $20.4 billion, 24 per cent lower than a year earlier.
On Hysan's rating, Standard & Poor's said the downgrade reflected Hysan's growing financial risk caused by its increased debt burden and pressure on earnings.
It said Hysan's debt leverage had increased to about 20 per cent after it bought Entertainment Building last year, compared with an average of 10 per cent from 1993 to 1996.
'Debt reduction has slowed since the acquisition and it will continue to be impeded by the soft property market,' it said.
The market's weakness had had a negative effect on Hysan's main source of income and realisable value from its asset disposals, it said.
Hysan sold nine apartments in Broadwood Park in Happy Valley in the past week at prices ranging from $5,000 to $5,600 per square foot. The sale raised more than $130 million.